Companies that will build smart energy grid

A system that will cut U.S. energy consumption for everyone.

The electric meters on the outside of your house haven’t changed in nearly a century. They’re stark symbols of a utility system that’s riddled with outdated practices and age-old inefficiencies. But now a handful of startups are pushing to create a “smart grid” that could discourage excess energy use by both utilities and consumers.

These companies stand at the heart of a broad and powerful push to reduce energy consumption and deliver it more efficiently. In the fight to reduce global emissions, this initiative could prove even more critical than developing new and renewable forms of energy; it tackles the demand-side issues, where people use it, rather than the supply side, where it’s generated. “The global potential for saving energy is huge,” says Gro Harlem Brundtland, the United Nations’ Special Envoy on Climate Change, at a Nordic Investment Bank colloquium held in New York earlier this year. “The US has half the energy efficiency of Japan, and China only has one-ninth.”

The demand-side approach has caught the attention of Foundation Capital, a Silicon Valley venture firm that has invested in three emerging smart-grid innovators: Silver Spring Networks, eMeter, and EnerNOC. The technology these companies have developed can, for example, send data to the power companies every six seconds instead of every 30 days. The constantly updated information enables utilities to charge more for energy at peak times, when it costs more, encouraging conservation. If green IT can help the grid operate more efficiently, the thinking goes, utilities won’t need to build more plants to meet increasing demand but instead can tap “nega-watts” created by conservation.

Each startup has its own approach. Silver Spring Networks, in Silicon Valley, puts wireless devices on power lines, transformers, and home meters to send information to utilities, which can then monitor and control electricity, water, and gas usage. Silver Spring is known as a “Cisco for the grid,” a reference to the tech company whose routers and switches are the plumbing of the Internet. Also in Silicon Valley, eMeter provides software that crunches data the utilities get from companies like Silver Spring, enabling them to see who is using what power, when. “You can charge different rates based on the cost of generation” at different times, says Cree Edwards, eMeter’s CEO. That’s a game-changer: With existing energy pricing structures, consumers have no incentive to alter their habits.

EnerNOC, based in Boston, reins in the vast amount of energy wasted in buildings. In a process known as demand response, EnerNOC pays factories and big box retailers to install a device that can shut off unnecessary power during peak demand so clients can sell that power back to the utilities. “Participating in demand response can be seen as a gateway to energy efficiency,” says Kevin Ashton, EnerNOC’s vice president of marketing. “If you see power that you don’t need at the peak, you start to question whether you need it at all.”

Implementing the advances of these smart-grid startups may not be easy or automatic. Utilities are monopolies that have been slow to change, and regulation makes the field incredibly complex. Consumer advocates worry that the cost of implementing smart-grid technologies will raise rates. And while smart-grid advocates say they can reduce peak-hour demand, environmentalists fear they’ll only be pushing power use to the off-peak hours rather than reducing overall use. Ralph Cavanagh, codirector of the Natural Resources Defense Council’s energy program, says the problem lies in how plants are typically powered during peak and regular hours. “If you shift consumption from on-peak gas-fired power plants to off-peak coal-fired power plants, that’s not obviously an environmental gain,” he says.

All sides agree that consumption must be cut because changing the supply has proven to be a massive challenge. Solar, wind, and other renewable sources aren’t yet economically feasible enough to push the world onto a clean-energy path. Green IT, on the other hand, is both financially viable and deployable almost immediately, according to Steve Vassallo, a principal at Foundation Capital. “We think we can look at the demand side and use the existing infrastructure more effectively,” he says. “The IT approach is all about doing things more efficiently. Better, faster, cheaper.”

Story by Dan Fost. This article originally appeared in "Plenty" in August 2008.